Ottawa about one-third of the way through $6B liability for public-sector severance payouts

OTTAWA — More than half of federal public servants have agreed to end a severance program that paid $500-million annually to employees who quit voluntarily or retired, according to federal government figures.

Though the government has been trying to end the program for years, it’s unclear exactly how much Canadian taxpayers will save if it finally succeeds.

The government has budgeted $6-billion to pay civil servants their accumulated severance as a condition of dropping the program from collective agreements. It is rare in the private sector to pay an employee severance if the worker leaves the job voluntarily.

So far, about 230,000 of the 400,000 employees the government is targeting have agreed to drop the severance program from collective agreements, according to Treasury Board figures.

About three-quarters have opted for early payouts, with more than 90% of these asking for the whole payment up-front rather than deferring it, a Treasury Board spokeswoman said Friday.

As first reported by Postmedia News last month, the payments cost taxpayers $1.2-billion in the 2011-12 fiscal year. All told, taxpayers were asked to foot $1.5-billion in regular and voluntary severance to 102,589 public servants in 2011-12, according to Postmedia’s numbers.

A further $850-million is budgeted for this fiscal year, according to the government’s supplementary estimates, to pay affected civil servants, meaning the government is expected to pay out one-third of its $6-billion liability by March 2013.

However, even if the new measures are fully accepted by the remaining public unions, the government can’t say exactly how much money would be saved over the long term.

It notes that figure is contingent on when employees opt to retire and when they decide to take payments.

“It’s very difficult to give you a precise number,” said Andrea Mandel-Campbell, a spokeswoman for Treasury Board president Tony Clement.

“What we can say is it’s a very substantial saving, no question about it.”

The payments are calculated based on one week for each year of service, with payments based on their last year as civil servants — their highest earning year.

The payments are the last for a five-decade-old program that the federal government started in the 1960s as a way to recruit private-sector workers into the public service. The government allowed workers to accumulate severance payouts that would be handed out even if a worker resigned voluntarily or retired.

In October 2010, the Conservatives put an end to the practice for resignations and retirements payments for new hires, and began renegotiating collective agreements to settle what was already owed.

The payments are calculated based on one week for each year of service, with payments based on their last year as civil servants — their highest earning year. Employees in the private sector usually are paid a few weeks severance for each year served, but the payment is generally only offered to workers who are laid off.

In exchange for public unions dropping the voluntary severance package from their contracts, workers received a raise of 0.25% in the first year of the agreement and 0.5% in the third year, according to Treasury Board figures.